Immediate benefits and growth projections
The reciprocal tariff agreement, which follows closely on the heels of the EU Free Trade Agreement, is expected to provide an immediate boost to Indian exports. BofA has already raised its GDP forecast for India from 6.5% to 6.8% earlier this year, and Bajoria now indicates further upside potential, with growth potentially reaching 7%.
“A 7% number looks pretty likely with the current set of assumptions,” Bajoria stated, noting that effective tariff rates are expected to drop from approximately 35% to around 12-13%.
Competitive advantage in ASEAN region
At 18%, India now enjoys lower tariffs compared to several Southeast Asian neighbors including Thailand, Philippines, Malaysia, Indonesia, and Vietnam. This positions India as an increasingly attractive sourcing destination for global importers.
The agreement is expected to particularly benefit labor-intensive sectors such as:
- Textiles
- Engineering goods
- Smartphone assembly
- Manufacturing sectors previously facing 50% tariffs
Currency and investment implications
The Indian rupee, which has been an underperformer among Asian currencies over the past year, showed immediate strength following the announcement. Bajoria expects the currency to continue appreciating as portfolio flows and foreign direct investment potentially return to Indian equity and fixed income markets.
Removing economic uncertainty
Perhaps most significantly, the deal eliminates a major source of uncertainty that had been hanging over the Indian economy. This clarity is expected to restore long-term order books for manufacturers and encourage investment planning across sectors.
“It basically turbocharge[s] expectations of the external sector,” Bajoria explained, emphasizing the agreement’s role in strengthening India’s integration into global supply chains – a strategic priority for the country in recent years.
The combination of reduced tariffs, improved competitiveness, and enhanced investor confidence positions India for stronger economic performance in the coming quarters.